BT BRANDS, INC. The following discussion of our financial condition and results of operation should be read in conjunction with the financial statements and related notes that appear elsewhere in this Annual Report. This discussion contains forward-looking statements and information relating to our business that reflect our current views and assumptions with respect to future events and are subject to risks and uncertainties that may cause our or our industry's actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
Fiscal Year
Our fiscal year is a 52/53-week year, ending on the Sunday closest to
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Introduction
As of
· Eight Burger Time fast-food restaurants and one Dairy Queen franchise
("BTND");
· Village Bier Garten a German-themed restaurant, bar, and entertainment
venue in Cocoa, Florida . ("VBG"):
· Keegan's Seafood Grille in Indian Rocks Beach, Florida ("Keegan's");
· Pie In The Sky Coffee and Bakery in Woods Hole, Massachusetts ("PIE").
· Unconsolidated affiliate, Bagger Dave's Burger Tavern, Inc, 41.2% owned
operates six Bagger Dave's restaurants in Michigan , Ohio , and Indiana
("BD").
Burger Time opened its first restaurant in
The average customer transaction at our Burger Time restaurants increased by
approximately 30% in fiscal 2022 compared to 2021 and currently is about
We operate through a central management organization that provides continuity across our restaurant base by utilizing the efficiencies of a central management team.
Notable 2022 Events
Our recent acquisitions have allowed us to diversify our operations into new restaurant segments and new geographic regions, reducing our dependency on the financial performance of our Burger Time restaurants. During the 2022 fiscal year, we acquired three operating restaurants and a 41.2% ownership interest in BD, an operator of six casual restaurants. We expect to consider acquisition opportunities in the future.
Keegan's
In
In
In
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Material Trends and Uncertainties
Industry trends have a direct impact on our business. Current trends include difficulties attracting food service workers and rapid inflation in the cost of input items. Recent trends also include the rapidly changing area of technology and food delivery. The major companies in the restaurant industry have rapidly adopted and developed smartphone and mobile delivery applications, have aggressively expanded drive-through operations, and developed loyalty programs and database marketing supported by a robust technology platform. We expect these trends to continue as restaurants aggressively compete for customers. Competitors will continue to discount prices through aggressive promotions.
Food costs have increased over the last two years, and we expect to see continued inflationary pressure during 2023. Beef and egg costs continued to increase in 2022. Given the competitive nature of the restaurant industry, it may be challenging to raise menu prices to fully cover cost increases. Future margin improvements may be difficult to achieve. Margin improvement will be achieved through operational enhancements, equipment advances, and increased volumes offsetting food cost increases.
Labor is a critical factor in operating our stores. Securing staff to run our locations at full capacity has become more challenging in most areas where we operate our restaurants. The current labor market has resulted in higher wages as the competition for employees intensifies, not only in the restaurant industry but in practically all retail and service industries. We must develop and retain quality employees.
Although moderating over the last twelve months, since
We cannot determine the future effects of any public health matters on our
operations and financial results. We have and could continue to experience the
impact of recent events including but not limited to commodity inflation,
disruption in our supply chain, and labor availability challenges at certain
shops. We have increased and plan to continue increasing prices to offset
additional costs due to a higher inflationary economic environment in the
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Result of operations for the 52 weeks ending
The following table sets forth, for the years indicated, our Consolidated Statements of Operations expressed as a percentage of total revenues. The percentages below may not reconcile because of rounding.
52 weeks ended, 52 weeks ended,
January 1, 2023 January 2, 2022
Amount % Amount %
SALES $ 12,601,169 100.0 % $ 8,451,870 100.0 %
COSTS AND EXPENSES
Restaurant operating expenses
Food and paper costs 4,854,321 38.5 3,285,752 38.9
Labor costs 4,126,837 32.7 2,383,206 28.2
Occupancy costs 1,147,744 9.1 681,560 8.1
Other operating expenses 780,564 6.2 469,822 5.6
Depreciation and amortization 449,038 3.6 234,027 2.8
General and administrative 1,633,829 13.0 416,791 4.9
Total costs and expenses 12,992,333 103.1 7,471,158 88.4
Income (loss) from operations (391,164 ) (3.1 ) 980,712 11.6
UNREALIZED LOSS ON MARKETABLE
SECURITIES (86,422 ) (.7 )
INTEREST EXPENSE (114,766 ) (.9 ) (172,861 ) (2.0 )
INTEREST AND DIVIDEND INCOME 125,529 1.0 - -
OTHER EXPENSE (80,649 ) (.6 )
EQUITY IN AFFILIATE LOSS (194,813 ) (1.6 ) - -
INCOME TAX (EXPENSE) BENEFIT 180,000 1.4 (200,000 ) (2.4 )
NET INCOME (LOSS) $ (562,285 ) (4.5 )% $ 607,851 7.2 %
Net Revenues:
Net sales for 2022 increased
For BTND locations open at year-end, 2022 restaurant sales ranged from a low of
Restaurant Operating Costs:
During 2022, restaurant operating costs (which refer to all the costs associated with operating our restaurants but do not include general and administrative expenses and depreciation and amortization) increased to 86.6% in restaurant sales in 2022 from 80.8% in 2021. This increase was due primarily to price inflation on input costs, including food and labor, and the matters discussed in the "Cost of Sales," "Labor Costs," and "Occupancy and Other Operating Cost" sections below. A decline in BTND restaurant sales also impacted the changes in restaurant-level costs from 2021 to 2022.
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The impact of cost increases and the addition of three non-BTND restaurants during the year and may be detailed as follows:
Restaurant operating costs for the period ended
1,568,569
Increase in labor costs 1,743,631
Increase in occupancy and operating cost 776,928
Restaurant operating costs for the periods ended
Costs of Sales - food and paper:
Cost of sales - food and paper - for 2022 decreased to 38.5% of restaurant sales from 38.9% of restaurant sales in 2021. The decrease results from the inclusion of PIE which operates at a lower food cost than BTND. The decrease also reflects the net result of price increases during the year offset by an inflationary cost environment, including increases in beef, paper and egg costs. PIE, because of its coffee-focused menu, has significantly lower food and paper costs than BTND and Keegan's.
Labor Costs:
In 2022, labor and benefits cost increased to 32.7% of restaurant sales from 28.2% in 2021. The increase is the net result of lower BTND activity in 2022, and higher wages because of labor shortages in some of our markets, contributing to an unfavorable utilization of the fixed portion of labor costs. PIE and Keegan's businesses run at higher labor costs than BTND. We benefit from minimal turnover in unit restaurant management. Payroll costs are semi-variable, meaning that they do not decrease proportionally to decreases in revenue; thus, they increase as a percentage of restaurant sales when there is a decrease in restaurant sales.
Occupancy and Other Operating Costs:
For 2022, occupancy and other costs increased to 15.3% of sales or
Depreciation and Amortization Costs:
For 2022, depreciation and amortization costs increased 91.9% or
General and Administrative Costs
General and administrative costs in 2022 increased 292.0%, or
Income (loss) from Operations:
The loss from operations was
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Interest expense:
In 2022, our interest expense decreased
Interest and Dividends and Other Income:
Interest and Dividend income was
Net Income (loss):
The net loss was
Restaurant-level EBITDA:
To supplement the consolidated financial statements, which are prepared and presented in accordance with GAAP, we use restaurant-level EBITDA (earnings before interest, taxes, depreciation and amortization), which is not a measure defined by GAAP. This non-GAAP operating measure is useful to both management and, we believe, to investors because it represents one means of gauging the overall profitability of our recurring and controllable core restaurant operations. However, this measure is not indicative of our overall results, nor does restaurant-level profit accrue directly to the benefit of stockholders, primarily due to the exclusion of corporate-level expenses. Restaurant-level EBITDA should not be considered a substitute for or superior to operating income, which is calculated in accordance with GAAP, and the reconciliations to operating income set forth below should be carefully evaluated.
We define restaurant-level EBITDA as operating income before pre-opening costs
if any, general and administrative costs, depreciation and amortization. General
and administrative expenses are excluded as they are generally unrelated to
restaurant-specific costs. Depreciation and amortization are excluded because
they are not ongoing controllable cash expenses and are unrelated to ongoing
operations' health.
Fiscal Year
2022 2021
Revenues $ 12,601,169 $ 8,451,870
Reconciliation:
Income (loss) from operations (391,164 ) 980,712
Depreciation and amortization 449,038 234,027General and administrative, corporate-level expenses 1,633,829 416,791 Restaurant-level EBITDA
$ 1,691,703 $ 1,631,530 Restaurant-level EBITDA margin 13.4 % 19.3 %
Liquidity and Capital Resources
For the 52 weeks that ended
The aftermath of the pandemic restrictions continues to have a significant
impact on the
Our primary requirements for liquidity are to fund our working capital needs, capital expenditures, and general corporate needs, as well as to invest in or acquire businesses that are synergistic with our business. Our operations do not require significant working capital as generally restaurants operate with negative working capital. Working capital deficits may be incurred in the future. Our liquidity and cash flows sources are operating cash flows and cash on hand. We have used available cash to make acquisitions, service debt, and to maintain our stores. Our working capital position benefits from the fact that we collect cash from sales from our customers at the point of sale or within a few days from our credit card processor, and in general, payments to our vendors are not due for thirty days.
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Summary of Cash Flows
Cash Flows Provided by Operating Activities
Operating cash flow in 2022 was
Cash Flows Used in Investing Activities
In 2022, we invested approximately
Cash Flows from Financing Activities
On
Contractual Obligations
As of
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